Australia leads the world in turnover of chief executives

Australia is one of the riskiest places in the world to be a chief executive, with job turnover rising to record levels in the wake of the global financial crisis.

More than 23 per cent of CEOs working for ASX 200 companies lost their jobs last year, consultants Booz & Co says, well above the global average of 14.2 per cent.

“It’s a very high churn rate," said Booz & Co partner Varya Davidson. “Australian CEOs are in one of the highest risk positions when you look at chief executives anywhere in the world."

The average tenure of an Australian CEO is now just 4.4 years compared with about seven years in North America.

Booz believes the shorter comparative tenures of Australian CEOs may be linked to intense local media scrutiny of their performance.

“It is very tough for them," Ms Davidson said, adding Booz’s study underscored the need for boards and executive search firms to have well-established succession plans.

The 23.5 per cent Australian turn­over rate is the highest since Booz began tracking CEO exits 12 years ago. This trumps the rest of the world, beating not only Western Europe and the United States, where turnover rates run at 14 per cent, but also the emerging markets of Brazil, India and Russia, where the rate is about 22 per cent.

Ralph Norris
of Commonwealth Bank
,
Andrew Forrest
of Fortescue Metals,
David Stewart
of Leighton Holdings and Richard Cottee of Nexus Energy were among the CEOs to depart last year, either because they retired or they were forced out by boards – as in the case of Mr Stewart and Mr Cottee.

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Although most departures were planned, a surprisingly high 37 per cent were instigated by mergers and acquisitions.

Mr Stewart’s short-lived career as Leighton’s chief executive came to a sudden end after Spanish group ACS acquired the contractor’s biggest shareholder, Hochtief, while
Ian Johnston
’s tenure at Foster’s Group finished after the brewer was bought by SAB Miller.

Forced departures are also on the increase, accounting for 20 per cent of 2011 turnover compared to 18 per cent a year earlier.

Meanwhile, replacement CEOs are more and more likely to be hired from outside companies, with about 51 per cent of new CEOs hired externally – up substantially on 29 per cent in 2008.

The rise in outsiders is not due to more foreign appointments. About 89 per cent were either Australians or working in Australia.

Booz attributes the trend towards outsiders to boards being more aware of their fiduciary duties and conducting broad-ranging searches, as well as a belief investors are impressed by fresh blood.

Outsiders typically deliver better profits for shareholders, producing average annual total shareholder returns of 12 per cent between 2009 and 2011, compared to insiders’ returns of 8 per cent.

But they are more likely to cause friction and be forced out of a job than insiders.

About 35 per cent of outsiders’ departures in 2011 were forced, compared with 28 per cent for insiders.